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May 20, 2009

Docs at BIO: Panel Offers Suggestions for Fixing the USPTO -- Updated

In a Wednesday Super Session entitled "A Model Patent Office for the Future -- Promoting and Protecting Investments in Innovation," a panel consisting of Sherry Knowles, Vice President of Corporate Intellectual Property at GlaxoSmithKline Biopharmaceuticals, Inc.; Q. Todd Dickinson, Executive Director for the American Intellectual Property Law Association (AIPLA); John Duffy, Professor of Law at George Washington University Law School; and Jeff Kushan, a Partner at Sidley Austin LLP, provided a long range view of what the model patent office of the future can and should look like to drive innovation and economic growth, and promote investment in IP-intensive industries.

Ms. Knowles (at left), who moderated the session, began the discussion by fondly recalling the "Golden Era" of patent prosecution in which U.S. examiners were intrigued by inventions disclosed and claimed in patent applications, and worked with applicants to advance prosecution. She noted that cooperation between the USPTO and its stakeholders had reached an all-time low, analogizing the USPTO to a "hospital that hates patients." Pointing to statistics showing a decreasing filing rate, a first quarter allowance rate of 42% (which Ms. Knowles noted was also an all-time low), and an increasing application backlog of applications, she labeled the current situation a "train wreck." Ms. Knowles contended, however, that stakeholders could not just count on patent reform, the courts, or the yet-to-be-named USPTO Director to fix the Office's problems, but rather had to play an active role (including working with the USPTO) to ensure that the USPTO's problems are solved.

Mr. Dickinson (at right), who served as USPTO Director during the Clinton Administration, discussed a number of challenges that will confront the next Director, including the application backlog, application pendency, the current revenue shortfall, examiner attrition, and examination quality. With respect to the first two challenges, Mr. Dickinson noted that the application backlog was approaching a million applications and that application pendency currently stood at 38 months. He indicated that Gary Locke, the new Secretary of Commerce, had recently proposed reducing pendency to only 10 months. While he found this goal to be laudable, he observed that the last time the USPTO had a 10-month application pendency, the country was embroiled in a Civil War. He also noted that only one USPTO Director had been able to reduce application pendency in the past thirty years (later confirming that he had been that lone Director). With regard to the Office's revenue shortfall, Mr. Dickinson pointed out that as a result of a drop in application filings and lower maintenance fee collections, revenue was down 10% for the year. The revenue shortfall, in turn, had forced the Office to implement a hiring freeze and eliminate programs such as law school reimbursement for examiners, which not surprisingly, had negatively impacted examiner attrition (although Mr. Dickinson noted that the negative impacts have been somewhat offset by the unsettled job market). Finally, Mr. Dickinson argued that examination quality was an issue that the USPTO needed to address, and one that patent reform (which has focused on downstream, litigation-related "reforms") could not fix.

Mr. Dickinson next proposed several USPTO reforms, including changes in Office leadership, the count system, examination time allotments and examiner pay, enhanced worksharing, an end to fee diversion, and deferred examination. Mr. Dickinson advised the new USPTO leadership that rulemaking transparency and attempts to engage stakeholders in the process would be critical to the success of any future rulemaking (a lesson he said he learned during passage of the AIPA, and a lesson that the last Administration never seemed to learn). According to Mr. Dickinson, the count system, by which the Office measures examiner (and supervisor) performance, was in need of an update (he noted that the system had not been significantly changed in 30 years). However, he advised session attendees that such an update would not come cheap, as the last update of the system cost $20 million. Mr. Dickinson also argued that the amount of time allotted for examination, which he said ranged from 18-36 hours per application, was also in need of an update. Mr. Dickinson warned, however, that adding just one hour to the examination of each application would result in an additional $20 million in expense. On the topic of worksharing, Mr. Dickinson stated that continued implementation of such programs would require a leap a faith and buy-in from stakeholders with regard to searches conducted by foreign patent offices. While noting that the last six Bush budgets and the first Obama budget had specified an annual end to fee diversion, Mr. Dickinson argued that a permanent end to fee diversion was needed in order to permit the USPTO to engage in long-term planning. Finally, on the topic of deferred examination, he admitted that his own organization had traditionally rejected deferred examination proposals, but refused to dismiss deferred examination as a possible tool for reforming the USPTO, stating that the devil would be in the details (e.g., how many years would be available, how would the fee structure be altered, how would intervening rights and patent term adjustment be handled).

In a presentation entitled "Ending the Patenting Monopoly: The Global Transition to Patent Office Decentralization," Prof. Duffy (at left) discussed the evolution of the USPTO from its current antiquated state. Noting that the USPTO had changed little since its 1836 origins, when the centralization of patent examination was a revolutionary (but perhaps sensible) concept, he argued that radical change was needed (and that such change was almost inevitable). Prof. Duffy argued that the current system, in which applicants were forced to deal with a single entity, necessarily created a monopolistic attitude at the USPTO. Thus, stakeholders upset over lengthy application pendency in the U.S. were left with no recourse but to accept that pendency.

As an example of a decentralized (or demonopolized) patent examination system, Prof. Duffy pointed to the Israeli patent system, in which applicants are allowed to use the examination of a corresponding application in a number of other patent offices to secure an allowance of an application in the Israeli Patent Office. Prof. Duffy also noted that steps towards demonopolization had already been taken in the form of the implementation of the PCT, where U.S. applicants can choose to have searches conducted by the USPTO, EPO, IP Australia, or South Korean Patent Office (and at significantly different costs); the creation of the EPO, where national offices compete with the EPO to provide examination services; and the Patent Prosecution Highway (PPH), a worksharing arrangement between the USPTO and a number of foreign patent offices.

Prof. Duffy concluded his presentation by discussing private searches, the peer-to-patent system, and accelerated examination/Application Quality Submissions (AQSs), in which entities other than the USPTO perform the search or examination functions. Referring to the above as the "cutting edge" of demonopolozation, Prof. Duffy predicted an inevitable move towards private searches. However, he acknowledged that inequitable conduct remained a thorn in the side of accelerated examination. Prof. Duffy also noted that the reaction to the demonopolization movement had not been favorable, pointing to a section of the Senate patent reform bill (S. 515), which labels search and examination functions as "sovereign," and requires these functions to be performed by U.S. citizens. Mr. Dickinson speculated that lobbying from the examiners' union had led to the addition of this provision to the bill.

Mr. Kushan (at right) was the last member of the panel to offer his suggestions for USPTO reform in a presentation entitled "An Idealized PTO for Biotech and Pharmaceutical Applications." Touching on the issue of patent quality, Mr. Kushan noted that the standards under which patents issue are frequently different from the standards under which patents are litigated. Mr. Kushan also agreed with Mr. Dickinson that the outdated count system and time allotted for examination needed to be changed. He also criticized the "two sets of eyes" policy as one in which examination was done "twice inefficiently" instead of just "once inefficiently." Mr. Kushan advocated for "on demand" examination, with the caveat that applicants should be required to pay higher fees to defer examination. He also contended that inequitable conduct reform was as necessary for the USPTO as it was for applicants.

In the question and answer portion of the session, Ms. Knowles proposed (somewhat surprisingly) that the USPTO should enact escalating fees for the presentation of additional claims (akin to current EPO practice), the filing of each new continuation, and the submission of each new reference. While the other panelists were less than enthusiastic about her proposal, none mentioned that in the absence of production goal reform (i.e., changes to the count system and examination time allotments) and inequitable conduct reform, escalating fees would be unlikely to resolve the problems confronting the USPTO. Ms. Knowles also asked the panelists for their opinions regarding the substantive or procedural nature of the rule limiting continuations that was at issue in Tafas v. Doll. Mr. Dickinson stated that the AIPLA believed the rule was substantive, but Prof. Duffy, noting his background in administrative law, suggested that Ms. Knowles would not be happy if the Supreme Court ever got their hands on the case. When Ms. Knowles stated that she thought the Supreme Court would provide a more favorable ruling for GSK than the Federal Circuit did, Prof. Duffy jokingly advised her to hire some new attorneys. When asked about his Supreme Court prediction after the session, Prof. Duffy indicated that the Supreme Court (where he once clerked) was not as familiar with patent law as it was with administrative law, and therefore, the Court would likely defer to the USPTO with respect to its interpretation of 35 U.S.C. § 120, and thus find the rule limiting continuations to be consistent with that section.

As an Israel-based practitioner, I commend John Duffy for pointing to the Israel patent system as one from which the USPTO others could possibly learn with respect to work sharing, although I'd like to correct a few minor points (at least as they were reported here) and offer some additional observations.

First, there is only one Israel PTO, not 13 competing patent offices, as the post implies. What is true is that in the 1980's, the Israel PTO implemented a policy whereby one could use the grant of a corresponding patent in certain other jurisdictions as the basis for obtaining allowance in Israel. This practice was then enacted in 1995 as section 17(c) of the Patents Law. The animus for adoption of this practice was the ILPTO's recognition, and willingness to admit, that it had more work than it could handle, and that there was no need to duplicate efforts if another competent patent office had already examined the application. More recently, the Commissioner has made implementation of this procedure even easier, allowing applicants to base allowance in Israel on *allowance* (rather than grant) in the foreign jurisdiction, or even on the basis of a favorable PCT patentability report.

This is not to say that one can file an application in any of 13 countries and obtain a patent in Israel. One still has to file the application in Israel; but obtaining allowance of the corresponding application in the US, EPO or any of nine other jurisdictions (a total of 11, not 13 as reported in the posting) is generally sufficient for obtaining allowance in Israel under 17(c).

As one might expect, there are some wrinkles with the 17(c) procedure, not all of which have been ironed out. For example, although all of the approved foreign jurisdictions have similar novelty and non-obvious (or inventive step) requirements, there are nevertheless differences between the requirements in different jurisdictions. Does it matter, therefore, whether one bases allowance in Israel on the allowed European claims or the allowed U.S. claims? I'm not aware of any cases where this question was raised, but theoretically an adverse party could argue that the law in Israel accords more with the law of the jurisdiction not chosen than the law of the jurisdiction on which the 17(c) request was based, and therefore the claims granted in Israel are somehow tainted and do not deserve to be presumed valid.

Interestly, while most applicants, particularly corporate applicants, have embraced 17(c) practice as a means of lowering prosecution costs, it appears that some members of the local patent bar have not: last week at the spring AIPLA meeting I spoke with an attorney who works in-house at one of the big pharma companies. Although his company has been filing in Israel for years, he was unaware of the 17(c) procedure. I suspect that his Israel patent counsel wants to milk the company for as much as possible during prosecution, and therefore doesn't bother advising the company of the availability of allowance per 17(c).

My principal concern with 17(c) is that it externalizes the cost of patent examination. It appears to me that adoption of a similar policy by other local patent offices would result less work for those offices, but no easing of the burden for the major patent offices, viz. the EPO, USPTO and JPO. This certainly seems to have been an (unintended?) effect of the centralization of examination in Europe: apparently the Danish PTO no longer has enough work, as last week it was one of the exhibitors at the AIPLA meeting, advertising its ability to conduct patentability searches. Of course, if the major offices could come to some consensus not just about work sharing for searches but about comity vis-a-vis the actual examination, then the overall workload could decrease, improving the overall quality of all examinations, and hopefully allowing examiners to understand that their job is not to deny patents, but make sure that patents *are* granted for that which *is* patentable. Unfortunately, given the tortuous history of the (non)-adoption of first-to-file in the USA, such comity is probably too much to expect.

"In the question and answer portion of the session, Ms. Knowles proposed (somewhat surprisingly) that the USPTO should enact escalating fees for the presentation of additional claims (akin to current EPO practice), the filing of each new continuation, and the submission of each new reference."

Not surprising stance for a big corp. attorney, part of the unholy alliance of big corps., big firms, and law professors, driving "reform" of the patent system...

KSR, Bilski, and all recent law has always made things difficult for the brilliant small guy with patent rights.

I was in attendance at Wednesday's session and find that this summary unfairly represents Ms. Knowles's remarks. What she was suggesting was not that we couldn't count on this group or that group to make the necessary changes- but that we must all work together to make it happen. As she noted, the health of our industry depends on it. So rather than print incomplete quotes, why not give her and GSK credit for leading the charge to make sure the USPTO will work for our industry?

I believe Prof. Duffy was recommending (albeit in a joking manner) that anyone doubting his prediction concerning how the Supreme Court would handle Tafas would best speak with an administrative law attorney. Like Prof. Rai at Duke, who Prof. Duffy mentioned by name after the session, Prof. Duffy believes that Tafas is an administrative law case, and that the Supreme Court would view it as such.

Donald Zuhn's reporting on this event is generally very good, and his article is nicely written. On one significant point, however, the article probably gives an inaccurate impression. I discuss that below, with two other small comments.

1. Knowles’ Theme. The article states that Sherry Knowles “argued that stakeholders could not count on patent reform, the courts, or the yet-to-be-named USPTO Director to fix the Office's problems.” I think this sentence gives an inaccurate impression that Knowles was despondent about the ability of anyone to fix the PTO. As I remember it, Knowles’ general theme was that stakeholders could not just count on somebody else to address the problems at the PTO; rather, they must work together with the other actors to address the current problems. She was delivering not a pessimistic message, but a call to action.

2. GSK’s Lawyers. As the article accurately reports, I joked that, if GSK’s lawyers were promising a better result at the Supreme Court in Tafas v. Dudas, then GSK might think about getting different lawyers. I want to emphasize that this was a joke designed to make point about the Tafas case, not about GSK’s lawyers. GSK has been very well served by its attorneys, which includes an excellent team of lawyers from Kirkland & Ellis headed by John M. Desmarais. They've been successful in winning 99% of what GSK wanted. The rules still aren't in effect, and they are unlikely ever to go into effect without substantial revision. Moreover, as for the last 1% percent that GSK attorneys weren’t able to win, I don't think any attorneys could have won. The administrative law issues in the case were always very difficult for GSK’s position. I don’t think any set of attorneys could have produced a better result, and I don’t doubt that GSK’s lawyers recognize that Supreme Court review would have its risks.

3. Tafas at the Supreme Court. Judge Prost did a masterful job on the administrative law issues in the Tafas case. If the case were appealed to the Supreme Court, I think the Court would largely affirm her opinion. The most difficult issue in the case has always been whether, giving the agency’s rules an appropriate amount of Chevron deference, a court should nonetheless hold Final Rule 78 inconsistent with the clear meaning of section 120 of the Patent Act. Judge Prost ruled against the agency on that issue, and her result seems to me to be one reasonable resolution of a difficult issue. But the issue is a close one, as even Judge Bryson’s concurrence suggests. If Tafas were to be heard by the Supreme Court, it is entirely possible that the Justices (a majority of whom either have taught ad law or have served on the ad law-heavy D.C. Circuit) might give the agency a bit more deference than the Federal Circuit panel did. Thus, if the case went to the Supreme Court, I think likely outcomes would be either a complete affirmance or a reversal limited to the one issue that GSK won at the Federal Circuit.

Donald Zuhn's reporting on this event is generally very good, and his article is nicely written. On one significant point, however, the article probably gives an inaccurate impression. I discuss that below, with two other small comments.

1. Knowles’ Theme. The article states that Sherry Knowles “argued that stakeholders could not count on patent reform, the courts, or the yet-to-be-named USPTO Director to fix the Office's problems.” I think this sentence gives an inaccurate impression that Knowles was despondent about the ability of anyone to fix the PTO. As I remember it, Knowles’ general theme was that stakeholders could not just count on somebody else to address the problems at the PTO; rather, they must work together with the other actors to address the current problems. She was delivering not a pessimistic message, but a call to action.

2. GSK’s Lawyers. As the article accurately reports, I joked that, if GSK’s lawyers were promising a better result at the Supreme Court in Tafas v. Dudas, then GSK might think about getting different lawyers. I want to emphasize that this was a joke designed to make point about the Tafas case, not about GSK’s lawyers. GSK has been very well served by its attorneys, which includes an excellent team of lawyers from Kirkland & Ellis headed by John M. Desmarais. They've been successful in winning 99% of what GSK wanted. The rules still aren't in effect, and they are unlikely ever to go into effect without substantial revision. Moreover, as for the last 1% percent that GSK attorneys weren’t able to win, I don't think any attorneys could have won. The administrative law issues in the case were always very difficult for GSK’s position. I don’t think any set of attorneys could have produced a better result, and I don’t doubt that GSK’s lawyers recognize that Supreme Court review would have its risks.

3. Tafas at the Supreme Court. Judge Prost did a masterful job on the administrative law issues in the Tafas case. If the case were appealed to the Supreme Court, I think the Court would largely affirm her opinion. The most difficult issue in the case has always been whether, giving the agency’s rules an appropriate amount of Chevron deference, a court should nonetheless hold Final Rule 78 inconsistent with the clear meaning of section 120 of the Patent Act. Judge Prost ruled against the agency on that issue, and her result seems to me to be one reasonable resolution of a difficult issue. But the issue is a close one, as even Judge Bryson’s concurrence suggests. If Tafas were to be heard by the Supreme Court, it is entirely possible that the Justices (a majority of whom either have taught ad law or have served on the ad law-heavy D.C. Circuit) might give the agency a bit more deference than the Federal Circuit panel did. Thus, if the case went to the Supreme Court, I think likely outcomes would be either a complete affirmance or a reversal limited to the one issue that GSK won at the Federal Circuit.

"Like Prof. Rai at Duke, who Prof. Duffy mentioned by name after the session, Prof. Duffy believes that Tafas is an administrative law case, and that the Supreme Court would view it as such."

And as such they would come the exact same conclusions which I came to a long time ago, with the exception of the "An" being singular (an interpretation contradicted by U.S.C 1). But Don, you're new around these parts it seems, perhaps you haven't read my discussions on the subject.

Me, Rai, and Duffy are in the same corner. I wonder though, if the case went to the USSC and the USSC affirmed all of the CAFC's findings except for the portion where it went against the USPTO, and reversed that portion, would the DC still dare to kill the rules under one of the myriad ways which it currently no doubt will? I suspect so, but it would be very funny that the DC elected not to address some of those other issues up front and foreclose, for the most part, all this appealing.

"Gary Locke, the new Secretary of Commerce, had recently proposed reducing pendency to only 10 months. While he found this goal to be laudable, he observed that the last time the USPTO had a 10-month application pendency, the country was embroiled in a Civil War"

Um... wouldn't a 10 year pendency cause increased court activity and re-exams? Especially considering the increased filings. To me, an 18 month pendency sounds best considering that's when most applications publish, which would allow all the related stuff to publish and the examiner to truly consider the state of the art at the time of filing.

"Gary Locke, the new Secretary of Commerce, had recently proposed reducing pendency to only 10 months. While he found this goal to be laudable, he observed that the last time the USPTO had a 10-month application pendency, the country was embroiled in a Civil War"

Um... wouldn't a 10-month pendency cause increased court activity and re-exams? Especially considering the increased filings. To me, an 18-month pendency sounds best considering that's when most applications publish, which would allow all the related stuff to publish and the examiner to truly consider the state of the art at the time of filing.